The Carnage In Computers Continues

January 15, 1985|By Christine Winter.

THOUGH MOST computer experts have all but written off the lower end of the home market--machines under $200--the category is still alive, if not too well. And a new round of competition between Atari and Commodore could spark even more carnage in what has already been a bloody arena.

The low-end computer market was pretty well decimated by the end of 1983 by Commodore International Ltd. under the guidance of controversial computer marketing whiz Jack Tramiel. Texas Instruments, Timex and Mattel pulled out entirely, while Atari and Coleco limped along with staggering losses in response to Tramiel`s brutal price-cutting. Sales for the year, however, were healthy, thanks to all the closeout bargains.

During 1984, Commodore continued to dominate the low-end market, which, by this time, however, had lost some of its luster as consumers became aware of the do-little nature of the machines and gradually shifted to higher-performance models. Sales, though down, were still fairly robust, thanks to continuing low prices.

ANALYSTS predict that sales of units in this category will continue to grow but slowly and much less dramatically than in higher price ranges.

Now yet another competitor, Coleco, has folded its tent and slipped away. But Commodore faces a serious challenge to its best-selling model, the 64. That threat comes from the new Atari, under the leadership of none other than marketing whiz Tramiel.

For an industry as volatile as the microcomputer market, events rarely come full cycle to such an extent.

``SALES OF the Atari 800XL at such low prices ($120) already hurt Commodore at Christmas--not a whole lot, but some,`` said Ken Lim, an analyst at Dataquest Inc. ``If there had been more Atari machines available, Commodore would have been hurt more.``

Lim estimates Atari sold about 420,000 800XLs for the year, with production limited because of the company`s financial problems and change of ownership. Commodore meanwhile sold about 1.8 million Commodore 64s, about 35 to 40 percent of them in the Christmas period, he said.

Yet Christmas `84 was considered something of a disappointment for Commodore by analysts. Mark Manson of Donaldson, Lufkin & Jenrette, a New York securities firm, estimates quarterly sales for the Christmas period (the second quarter of Commodore`s fiscal `85) will be about $350 million, down from slightly more than $431 million the previous year.

``Sales were up in Europe and down in this country,`` he said. ``That`s not a good sign.``

AT THE RECENT Consumer Electronics Show in Las Vegas last week, there was much discussion about both Atari and Commodore sneaking into the midrange marketplace with their 128,000-byte models and Atari attempting to take on Apple with its Mac-alikes. Yet Atari reconfirmed its presence in the lower arena by sprucing up its 800XL with a few cosmetic changes and a new name, the 65XE.

``There will only be a price war if our products force others to come down to meet us,`` said James Copland, Atari`s vice president of marketing.

``But I doubt if Commodore can come down on its 64, because there are so many out there on the shelves that it has to protect.``

Manson, however, suggests that Commodore can cut its prices on the 64 substantially and still make money. He estimates there are about 100,000 Commodore 64s ``in the retail pipeline.`` The Commodore lists at $219 but is frequently discounted to $189 or $199.

Rumors at the Consumer Electronics Show that Commodore might cut its prices caused its stock to fall $1.25 on the last day of the show. Commodore refuses to answer any inquiries about its pricing policies for the 64.

MEANWHILE, Copland insists that Atari can make money on the 65XE at a price of $120. ``We can make as much money as Commodore does on the 64, and more money than normal for a product at that price point,`` he said.

Yet Lim doesn`t feel the renewed competition will spark a real price war. ``There`s just not enough interest in that low-end market anymore to really spur any deep price-cutting,`` he said, although he guessed Commodore might lower the price on the 64 to about $150.

``Both Atari and Commodore want to focus on their new higher-end models,`` Lim suggested. In fact, Copland added that he sees the ``biggest battleground`` occurring over Atari`s 130XE, its 128,000-byte model, and Commodore`s new 128, with similar features.

Atari has announced that its 130XE will sell for ``well under $200,``

while most analysts predict Commodore will set a price tag of about $225 to $250 on its 128.